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Swoop predicts surge in commercial remortgages

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Online finance specialist Swoop Funding expects 2021 to be a busy year for the commercial property market, predicting a range of factors that will stimulate activity this year.

5th Feb 2021
Freelance Journalist
In association with
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The commercial property market has been shaken by the pandemic, with total investment volumes falling by 22% in 2020, although real estate services provider Savills suggested this was a “strong performance” given that the market came to a standstill early last year.

Moving out of the office

The pandemic that rocked the property market may also sow the seeds for its regrowth, however, with futurologists and financial services like Swoop  alike predicting that the working from home phenomenon intensified by Covid-19 will become a permanent feature.

The move to remote working does not spell the end of the office, but it will be significant enough to shake up the commercial property market.

Around three quarters of City of London firms are reviewing their office space needs according to a survey by the CBI and PwC, while over half plan on reducing their long-term estates. Anecdotal reports from the accounting community indicate that many smaller firms are following suit.

The continuation of remote working post-pandemic will encourage a “significant number of trading businesses having to reassess their borrowing needs so they can carry out activities like repurposing premises for alternative use”, Swoop noted recently.

In addition, Savills identified the trend towards properties such as datacentres, health and science facilities as the “second biggest asset class in the UK market this year after offices”. Other shifts could be encouraged by businesses repurposing offices into residential homes using permitted development rights.

While the structural changes would stimulate some activity, Swoop expected the commercial property market to accelerate when businesses start looking to use their properties as security to refinance borrowing when government-backed schemes like coronavirus business interruption loans come to an end. 

Stamp duty stimulus

The end of the 3% stamp duty rate on second home and investment property purchases over £125,000 will add to the momentum. George Osborne’s 2016 incentive to help first-time buyers get on the property ladder will filter through to the market when their five-year fixed rate periods start coming to an end from April this year, opening up a route for remortagages.

Given that average property prices have ticked upwards since 2016, investors may look to release their capital gains through remortgaging. This route does not create a tax chargeable event to keep capital gains tax, income tax or corporation tax paid in check.

Businesses that purchased buy-to-let properties before the stamp duty change could play their part in helping the market recover from the damage caused by Covid-19 disruption. Investors and second homeowners were responsible for a 121% increase in the volume of five-year fixed rate mortgages, offering a clue to the scale of activity that could result from the transition.

Replies (3)

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Jennifer Adams
By Jennifer Adams
06th Feb 2021 14:02

Its not that companies will be buying offices etc its more that there are some companies that have a nice amount of money in their bank account and cant see what to do with it. Many dont like the idea of stock market or even pensions (or might have one in place already) so they set up a separate SPV company, deposit money from their main company and then go off to get the balance of the purchase price as a commercial mortgage. I've had 4 clients who have done this.

They are buying residential as they cant find any commercial properties.

Re stamp duty... anyone looking to buy now has missed their chance. Currently Land registry are only now dealing with applications submitted in late Oct. But then Rishi might leave it to the last minute to extend the deadline?

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Replying to Jennifer Adams:
paddle steamer
By DJKL
08th Feb 2021 17:40

But are the LTV and interest cover covenants being offered tightening as the lenders review their own balance sheets and review their lending book profile?

Wearing my in house accountant for a commercial agent hat I know we are seeing more tertiary commercial property being marketed for sale than previously, I just need to look at our online list to see how much we currently have on the books, in fact we had a jokey conversation earlier today as to whether our fee rates ought to be varied depending upon what clients were asking us to either refill with tenants or sell, more difficult higher percentage fees.

The main repurposing could be more moving to the "small is beautiful" approach, something we have now been doing for a fair few years since post 2008, subdividing larger units, inclusive rents, short term licences (12 months) etc (wearing my property investor hat), of course the danger for us is that increased supply within this market will eat into our particular niche so we are also looking at conversions from commercial to residential, like Ko-Ko we already have a little list and a chunk of cash sitting in the bank in case we do need to take this route.

Would I go to the banks for redevelopment funding, only if I had to, banks generally hold up change of use as the tap never flows when you need it to gush, it is only free flowing when you do not need it.

Just today we got a tentative letting enquiry for 5,000 sq ft of offices over three floors, our first question, can you split it into three units. (Things like fire exits/travel distances to exits being key)

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By Justin Bryant
08th Feb 2021 12:14

I doubt the 3% SDLT surcharge is a massive factor as that can be side-stepped fairly easily under mixed-use rate. This so-called story with so-called justifications just looks like a thinly veiled marketing piece for "Online finance specialist Swoop Funding".

Also, re above comment, HMLR speed of processing has nowt to do with timing of end of SDLT holiday.

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